Performance Fees Were the Least of This Fund's Sins
Putnam Capital Spectrum was born to fail.
This spring, The Wall Street Journal's Jason Zweig called out Putnam Capital Spectrum (PVSAX) for competing against an inappropriate benchmark. Unusually for a mutual fund, Putnam Capital Spectrum assesses a performance fee, which rewards or penalizes a fund based on how its returns compare to those of an unmanaged index. For Capital Spectrum, Putnam created a customized benchmark that consists of 50% U.S. stocks and 50% global developed-markets junk bonds.
As Jason pointed out, that choice raises suspicions that Putnam gamed the system, because over its 11-year history the fund has almost always held more than half its assets in stocks. The average has been 70%, with the percentage in late 2017 reaching as high as 88%. Wrote Jason, "Because, over time, stocks usually outperform bonds, a fund with the bulk of its holdings in stocks stands a good chance of beating a benchmark that consists of 50% bonds."
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.